Financing Skilled Labor

Vladimir Vladimirov

No 15751, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: How does competition for high-skilled workers affect the design and financing of compensation? The paper shows that competition affects compensation structure by leading to more equity-based pay. Such compensation attracts workers by helping them extract higher expected pay when uncertain about firm value. Equity-based compensation reduces firms' need for external financing, but it increases retention risk. Specifically, by making workers dependent on the retention of other workers, equity-based compensation increases the risk that worker turnover becomes contagious. To lower their compensation costs and improve retention, firms with stronger bargaining power favor deferred fixed compensation backed by credit lines.

Keywords: Financing wages; Compensation structure of non-executive employees; High-skilled employees; Contagious turnover; Worker runs; Worker bargaining power (search for similar items in EconPapers)
JEL-codes: G32 J33 J54 M52 (search for similar items in EconPapers)
Date: 2021-02
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